Detroit emergency manager opts to delay pension freeze

Reuters Staff

3 Min Read

Detroit Emergency Manager Kevyn Orr addresses the media following a ruling by U.S. District Judge Steven Rhodes that Detroit is eligible for the biggest municipal bankruptcy in U.S. history in Detroit, Michigan December 3, 2013.Rebecca Cook

(Reuters) - Detroit Emergency Manager Kevyn Orr on Monday delayed a move to freeze the pension fund for some of the city's workers just hours after the order became public, saying a delay would allow for mediation with the city's retirement funds to play out.

Orr had issued the order on December 30, with an effective date the following day, but it did not come to light until Monday when pension officials criticized the move. The document was not posted on a web page where Orr's other executive orders have been since taking over Michigan's biggest city in March.

Despite the delay, Orr said he reserves the right to retroactively freeze the General Retirement Fund, which covers non-public safety workers, retroactive to January 1 if mediation fails to produce an agreement on a $3.5 billion unfunded pension liability the city "cannot afford to pay."

"The city remains in a financial emergency, and to the extent that mediation can assist in finding a way to improve services for all of its 700,000 residents, then it is worth continuing," Orr said in a statement.

He added that "an additional delay without the prospect of a mediated solution threatens to further erode essential services and public safety."

Earlier on Monday, a spokeswoman for Detroit's General Retirement System blasted Orr for ordering the pension freeze in the wake of mediation ordered by a U.S. Bankruptcy Court judge, who is overseeing the city's historic municipal bankruptcy filing.

"This is an outrageous and over-zealous action from the (emergency manager's) office," Tina Bassett, the spokeswoman, said in a statement. "Again the (emergency manager's) office demonstrates a lack of integrity and willingness to make a good faith effort when negotiating with our pension system."

The pension freeze called for closing the pension fund to any new or rehired employees and stopping benefit accruals for current workers. It also stopped worker contributions to the pension and annuity savings funds and ended cost-of-living adjustments for pension payments made to retirees.

As of January 1, the order created a 401(k)-type defined contribution plan for affected workers.

Detroit's pension systems, made up of the general retirement and police and fire funds, are a major factor in the more than $18 billion in debt and other obligations that led to the city's historic municipal bankruptcy filing on July 18. Detroit has approximately 22,000 retirees who currently receive pensions, but only about 9,000 active employees supporting the funds, according to Orr's office.

The pension funds have filed an appeal with the U.S. Court of Appeals for the Sixth Circuit, hoping to overturn Judge Steven Rhodes' December 3 ruling that the city was eligible for Chapter 9 municipal bankruptcy.